Statutory Demands – A useful tool?

On an almost daily basis we here at The Debt Collection Centre (TDCC) see Debtor’s trying to dispute that an invoice is due although no complaint or dissatisfaction has ever been expressed until they have received a letter from us requesting immediate payment.

As most businesses know, and as solicitors ourselves we agree, the litigation process can be quite a lengthy and often drawn out process. The savvy Debtor can often know the litigation recovery process better than the Creditor that is trying to get its money back.

If a Debtor defends an action and states for example that the goods supplied were not fit for purpose and were not of satisfactory quality the Court would be reluctant, on any application to strike out the Defence, to strike it out.

The court may wish to wait until disclosure has taken place or perhaps witness statements exchanged. A Creditor that is faced with what it considers to be a disingenuous defence must make the decision to make an application for Summary Judgement (which is a procedure whereby the Court can award a Judgement where the defendant has no real prospect of successfully defending the claim or issue. This is not a quick solution!!

This causes the Creditor two immediate headaches.

The first is potential time and cost that it will take in order to prepare that application. The second is that even if that Creditor moves quickly they are still in the hands of the Court as to when the hearing of that application can be fixed.

Depending on how long it is estimated that hearing will take can often dictate how quickly that hearing will be listed to be heard in Court. For example if a hearing was to take a full day the Courts are incredibly busy and a full day “window” can be difficult to come by in the near future.

Conversely if the hearing is only due to take place for say half an hour it may be possible for the Court to list that matter sooner rather than later. Either way the creditor is in the hands of a third party and to an extent loses control of the timetable for recovery of its debt.

This is where a Statutory Demand may assist.
As Statutory Demand is a special type of written request from a Creditor for payment of a debt. The recipient of that Statutory Demand whether it be an individual or a Company has 21 days to settle the debt or importantly 18 days to ask the Court to set aside (i.e. to dismiss) the demand.

There is no Court fee to pay to issue a Statutory Demand. Here at TDCC we draft these on a daily basis and they can be an effective tool in getting the Debtor to focus on the debt it owes you. If the Debtor has numerous invoices that it needs to pay to various creditors that Debtor will often prioritise and pay the one that is becoming the most problematic. The old adage that he who shouts loudest gets paid first is in our experience true.

In Court proceedings the Creditor will file his claim form and the Defendant (Debtor) will have 14 days to acknowledge those proceedings and file its defence. Under the Civil Procedure Rules the Defendant is entitled to acknowledge the proceedings confirming that it intends to dispute and defend those proceedings and that it will file its defence 14 days later i.e. 28 days after it was served with the Claim.

As a starting position therefor, proceedings are often seen as unattractive because from a practical perspective almost another month can go past where you have not received any payment or indeed in many incidences you have no idea why the Debtor is disputing that payment is due.

A Statutory Demand has the advantage of not incurring a Court fee and also having a shorter deadline by which time the Debtor must respond. The Statutory Demand must be served personally on the Debtor and once served the time begins to tick!

If the Debtor does not apply to the Court to have the demand set aside within 18 days, and the debt has not been settled within 21 days (i.e. 3 days later) the Creditor is entitled to petition the Court for a Winding up Order if it is a Company. The Creditor can Petition for Bankruptcy if it is an Individual (and if the debt is greater than £5,000.00) (see our update dated 16th November “New debt threshold for bankruptcy proceedings restricts creditor’s recovery options”).

If the Debtor disputes the debt then they should clearly set out what that dispute is before the 18 day period has expired. It may be that once the Creditor has received details of the dispute it may decide to withdraw the Statutory Demand at that stage. However, it may also be that the Creditor believes that there is not legitimate dispute and the reasons given by the Debtor are merely an attempt to avoid payment but with no genuine dispute having been raised.

In our experience a Statutory Demand is a useful tool to secure fast payment and at worse is a useful mechanism to get the Debtor to properly set out it position clearly so that the Creditor can decide what its next steps are regarding recovery of the debt. At the very least the statutory demand will focus the Debtor’s attention on the debt and should assist both parties in narrowing the issues in dispute between them in the event that proceedings are necessary.

Statutory Demands, Bankruptcy and Winding up Petitions are our business.